HMRC confirms first benefits for mandatory payrolling from April 2027

From 6 April 2027, employers will be required to payroll:

• Company cars.
• Car fuel.
• Vans.
• Van fuel.
• Employer-provided medical benefits.
• Taxable employment expenses covered by the new reporting requirements.

Income Tax and Class 1A National Insurance contributions relating to these benefits will be reported through payroll in real time.

Employers will not need to register before payrolling the mandatory benefits.

The first phase is narrower than the original proposal to mandate payrolling for almost all benefits at the same time. HMRC’s current timeline indicates that most other benefits will enter mandatory payrolling from April 2028.

Employers will report the taxable value of the phase-one benefits through the Full Payment Submission for each relevant pay period.

HMRC expects to introduce additional FPS fields for:

• Company cars and car fuel.
• Vans and van fuel.
• Private medical treatment or insurance.
• Real-time Class 1A National Insurance contributions.

The proposed company car fields are particularly detailed and include information such as:

• The make and model of the vehicle.
• The date it was first registered.
• CO2 emissions.
• Zero-emission mileage.
• The calculated price and accessory values.
• Employee capital contributions.
• Employee payments for private use.
• Dates the vehicle or free fuel became available or ceased to be available.
• Pay-period and year-to-date cash-equivalent values.

The proposed medical benefit fields include the cost to the employer or amount forgone, together with pay-period and year-to-date taxable values.

Employers will only need to complete fields relating to benefits they have actually provided.

The final technical specifications are expected to be made available to payroll software providers during autumn 2026.

Benefits including employment-related loans and accommodation will not be mandatory during the first phase.

Employers will, however, be able to choose to payroll non-mandatory benefits voluntarily from April 2027.

HMRC plans to reopen the voluntary registration service in November 2026. Employers wishing to use it must register by 5 April 2027.

HMRC has warned that the voluntary service will operate differently from mandatory real-time payrolling. In particular, the additional RTI benefit fields used for phase-one mandatory benefits will not form part of the voluntary service.

Employers considering voluntary payrolling should therefore confirm how their payroll software will handle both processes.

HMRC recognises that employers may not always know the final taxable value of a benefit when payroll is processed.

Where the actual value is unavailable, employers may use a reasonable estimate. Once better information becomes available, the employer should update the value as soon as possible.

For an in-year adjustment, the employer should normally recalculate the remaining benefit value and spread it across the remaining pay periods in the tax year.

HMRC’s example considers an annual medical benefit initially estimated at £1,200. When the actual value is confirmed as £1,500 during the year, the outstanding value is divided across the remaining payroll periods.

Employers should not wait until the end of the tax year where an accurate or revised reasonable estimate can be identified earlier.

Employers will be able to revise the final FPS after the end of the tax year where:

• A benefit was omitted.
• An estimated value needs to be corrected.
• The final taxable value was not available during the year.
• A benefit or expense was under-reported or over-reported.

The precise correction deadline has not yet been confirmed, although HMRC expects it to be before 19 July following the end of the tax year.

Any additional Class 1A National Insurance contributions will need to be paid by:

• 19 July when paying by post.
• 22 July when paying electronically.

Where a correction is made after an employee has already received their P60, the employer will need to provide a revised P60 or an alternative statement showing the corrected figures.

HMRC does not currently plan to allow employers to carry corrections forward into a later tax year.

HMRC says employers should communicate the changes to affected employees before April 2027.

Employees may currently pay tax on benefits through an adjustment to their tax code, sometimes using an estimated value. From April 2027, tax on the phase-one benefits will instead be calculated through payroll in the year the benefit is received.

Some employees may also continue paying tax relating to benefits received in an earlier year. This could make it appear that they are being taxed twice, even though they are paying:

• Tax in real time on the current year’s benefit.
• An underpayment relating to an earlier tax year.

Clear communication will be needed to explain possible changes to tax codes and take-home pay.

Employers should prepare for a one-off overlap in Class 1A National Insurance contribution payments during 2027.

During the 2027–28 tax year, employers will begin paying Class 1A National Insurance contributions in real time on benefits provided from April 2027.

They will also still need to make the usual July 2027 Class 1A payment for benefits reported under the P11D process for 2026–27.

Employers should include this temporary overlap in their cash-flow and budgeting plans.